Month: March 2016

Retailers Dead Money as Economic Cycle in Later Stages – Barclays

Barclays came out negative on the U.S. Retail Broadlines/Hardlines sector in a report Thursday entitled “It’s About to Get a lot Harder.”

Analyst Matthew McClintock sees an asymmetric risk profile for investors at this stage of the economic cycle.  They highlighted that revolving consumer credit has accelerated at the same time retails sales have decelerated.  This, according to the analyst, suggests we are at the later stages of the economic cycle. Continue reading “Retailers Dead Money as Economic Cycle in Later Stages – Barclays”

Gold Has Best Quarter in 25 Years

Gold is set to have its biggest quarterly advance since September 1990, Bloomberg noted.  Thanks Ms. Yellen!

From Bloomberg:

Gold headed for the biggest quarterly advance since September 1990 as demand for haven assets surged to make the metal this year’s best performing major commodity.

Bullion for immediate delivery rose 0.5 percent to $1,230.86 an ounce by 3:22 p.m. in Singapore, according to Bloomberg generic pricing. The metal is up 16 percent since the start of January in the first quarterly gain since June 2014.

Gold rallied this year as it cemented its status as a store of value amid financial market turbulence and concern about the global economy, which led to speculation that the Federal Reserve would pause on tightening monetary policy in the U.S. A gauge of the U.S. currency headed for the biggest quarterly loss since 2010 after Fed Chair Janet Yellen said Tuesday the central bank will act “cautiously” as it looks to withdraw stimulus. Investor holdings in exchange-traded products have expanded by about 300 metric tons this quarter, the most since March 2009.

“The dovish remarks by Yellen earlier this week which reinforced the Fed’s stance to proceed gradually and cautiously with rate hikes this year have weighed on the U.S. dollar index, which is a positive for gold,” Vyanne Lai, an economist at National Australia Bank Ltd., said by e-mail. “Investment demand for gold appears to be holding up.”

Tame Wage Pressure Suggests Inflation Pickup Only Temporary

Data in February showed core PCE inflation is up 1.7%, which would be just below the Fed’s target of 2%.  However, Deutsche Bank economist Joseph Lavorgna believes that the recent pickup in core inflation is temporary because it has not occurred alongside any noticeable increase in wage pressures.

He highlights that average hourly earnings, the employment cost index and worker compensation have all been trending sideways.

Continue reading “Tame Wage Pressure Suggests Inflation Pickup Only Temporary”

Probability of Near-Term Rate Hike Plunges

Today’s comments from Fed Chairman Janet Yellen on rates pushed the probability of any near-term rate hike sharply lower.

The implied probability of an April quarter-point hike fell from 11.5% to 4.6%.


The implied probability of a June quarter-point hike fell from 34.6% to 28.4%.  The probability of a 50bps-hike went in June went from 3.5% to 1.2%.



Yellen Gives Bulls Some Juice

Can you spot in the chart below where Fed Chairman Janet Yellen made dovish comments?


In her speech today, Yellen indicated the Fed should proceed “cautiously” as it looks to raise interest rates again.

“Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy. This caution is especially warranted because, with the federal funds rate so low, the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric. If economic conditions were to strengthen considerably more than currently expected, the FOMC could readily raise its target range for the federal funds rate to stabilize the economy. By contrast, if the expansion was to falter or if inflation was to remain stubbornly low, the FOMC would be able to provide only a modest degree of additional stimulus by cutting the federal funds rate back to near zero.”

Yellen also dismissed claims the Fed is out of bullets, saying even if rates return to zero the Fed has a ‘considerable scope’ to provide additional accommodation.

“One must be careful, however, not to overstate the asymmetries affecting monetary policy at the moment. Even if the federal funds rate were to return to near zero, the FOMC would still have considerable scope to provide additional accommodation. In particular, we could use the approaches that we and other central banks successfully employed in the wake of the financial crisis to put additional downward pressure on long-term interest rates and so support the economy–specifically, forward guidance about the future path of the federal funds rate and increases in the size or duration of our holdings of long-term securities. While these tools may entail some risks and costs that do not apply to the federal funds rate, we used them effectively to strengthen the recovery from the Great Recession, and we would do so again if needed.”

Three Reasons to Sell Tesla Now

Tesla’s (NASDAQ: TSLA) stock has seen a tremendous bounce of nearly 60% since early February.  Now one analyst is warning clients that the ramp was not based on anything fundamental and only downside exists from here.

UBS analyst Colin Langan thinks the run-up is related to a calming of liquidity fears after the company drew down the rest of a $1 billion asset-based loan (ABL).  Excitement ahead of the Model 3 reveal and a recovery in gas prices also helped, he said.

Now, however, three items keep them at Sell:

  1. fundamental headwinds that persist with regards to TSLA’s storage business
  2. the upcoming Model 3 reveal could be a potential negative catalyst given high expectations and new competitors.  Of note, TSLA traded down 14% one month after Model X reveals
  3. UBS forecasts TSLA to draw down the rest of their ABL by the end of this year.  Given what they see as accelerated capex needs into the back half of this year and 2017, a raise could come sooner rather than later.

The analyst sees the stock dropping to $140, or 40% below yesterday’s close.

U.S. Presidential Election Now Complete with Battery Charge

The circus known as our political system just got another wrinkle… a police charge of battery.

Donald Trump’s Corey Lewandowski was charged  by police in Florida with intentionally grabbing and bruising the arm of Michelle Fields, a former Breitbart reporter.

In a statement, Mr. Trump said Lewandowski was “absolutely innocent” and will plea not guilty.

Jupiter, Florida police released the following video of the incident (BNO News)

SunEdison on the Brink of Bankruptcy

No shocker here…

SunEdison (NYSE: SUNE) shares plunged over 40% Tuesday after unit TerraForm Global (NASDAQ: GLBL) stated that “due to SunEdison’s liquidity difficulties, there is a substantial risk that SunEdison will soon seek bankruptcy protection.”

In addition, the Wall Street Journal reported overnight that the SEC is investigating SUNE’s “disclosures to investors about how much cash the solar-power company had on hand as its stock price collapsed last year.”

Last week we highlighted that the company was in talks with holders of its second-lien loans to fund a debtor-in-possession (DIP) financing facility.

Bankruptcy appears to be a forgone conclusion at this point. Now it is just a waiting game.



Calm Before the Volatility Storm?

BlackRock’s Global Chief Investment Strategist, Richard Turnill, warned that markets have become eerily quiet recently.  Now the firm is preparing portfolios for higher volatility.

U.S. equity market volatility is hovering around its lowest level since August 2015 and is well below its long-term average. This unusual calm follows declining market concerns about sliding oil prices, and the health of China’s economy and European banks. We do not expect this to last, and see a return to the higher-volatility regime that was the norm prior to QE.

The firm views Gold as a effective hedge if volatility spikes due to rising U.S. inflation fears.  They also like TIPS and similar instruments. Foreign-currency exposure can act as a diversifier as well.


California Likes Unemployment; Raises Minimum Wage to $15/hr

California became the first state in the nation to commit to raising the minimum wage to $15 per hour statewide.

Under the plan, minimum wage will rise to $10.50 per hour on January 1, 2017 for businesses with 26 or more employees, and then rises each year until reaching $15 per hour in 2022.

Amid the news it will be important the bookmark the February 2016 unemployment stats (below) as a benchmark:


Basic economics says the unemployment rate will likely go up from here, that is if the labor force stays the same.  As jobs dry up, those on the margin tend to leave the labor force all together and get on the welfare rolls – thus allowing the government to fudge the unemployment rate number.